Smart retailers? They're shrinking their stores

The key to surviving in today’s challenging retail market? For many retailers, it’s all about operating from smaller stores.

Online shopping doesn’t have to be the death of traditional brick-and-mortar retail. Increasingly, retailers are thriving by coordinating a strong online presence with physical stores that act almost like showrooms, highlighting products that consumers then buy later online.

Retailers – at least those adapting to the shopping habits of today’s consumers – don’t care if shoppers buy their products in a physical store or online, as long as they buy that product from them.

The rise of online shopping has also helped smart retailers save money by reducing the size of their store footprints. Stacy Wipfler, partner in the St. Louis office of law firm Husch Blackwell, has seen this. A growing number of retailers in Wipfler’s home market of St. Louis are shrinking their stores, and the move is paying off for them.

Why this trend toward smaller stores? If consumers can order products online, these retailers don’t have to stock as much inventory in their stores. This allows them to reduce their backroom space. And as retailers tweak their supply chain, opening warehouses and distribution centers closer to their customers, they can quickly replenish whatever supply might be running low.

This allows retailers to operate in smaller spaces, saving a considerable amount in rent, Wipfler said.

“A lot of people are looking at online sales as being the demon that is causing the end of physical retail,” Wipfler said. “But I don’t know that online sales have to be a negative for traditional, brick-and-mortar retailers. Online shopping can allow these retailers to be more efficient. If you rely on that combination of physical stores and online shopping, you can easily bring your rental costs down.”

It’s not just rental savings, either. With smaller physical footprints, retailers can also reduce their occupancy costs, lowering their heating, cooling and electrical bills.

“A lot of these decisions retailers are making to reduce the size of their stores are data-driven,” Wipfler said. “They are crunching the numbers to see what they are selling and how much they can save.”

Consider inventory. There was a time when retailers that wanted to sell sweaters needed a stack of them in every size and color. Today, retailers selling these same sweaters can carry fewer of them. If customers like the sweater but can’t find their size or favorite color, they can order the version they want from an in-store kiosk and have the item shipped directly to their homes.

“There is less of a need to have sweaters in every color and every size,” Wipfler said.

This ability to reduce inventory is inspiring many retailers to turn their stores into showrooms. Wipfler points to electronics retailer Best Buy. Shoppers stop in Best Buy locations to touch and feel the products. The staffers at the physical stores have been educated on how the products work and are quick to share their knowledge with shoppers.

Some of these shoppers might buy their laptops, game systems or TVs at the store. Others will go home and buy them from Best Buy’s Web site. Either way, Best Buy closes a sale.

Changing views of the supply chain are leading retailers to shrink their stores, too, Wipfler said. Retailers might have to pay premium rents for the best locations in a city. Why pay such high rents for backroom storage space? Instead, retailers can rely on distribution centers that are located nearby to quickly ship products to their stores when needed.

“Retailers that have a good grasp of their data and inventory know that if they are running out of size-eights in white, they can quickly ship those products in,” Wipfler said. “They can be in your store the next day. Retailers are increasingly focusing on their distribution and supply chain today. This is all a product of much better data collection.”

Wipfler says that retailers who embrace a culture of innovation will be the winners in today’s evolving market. As she says, a store is no longer just a store. Retailers that sell experiences – everything from onsite cooking lessons to yoga classes – will attract consumers.

Another key? Retailers need to understand where they fit on the shopping spectrum, Wipfler said.

Consider groceries and home goods. At one end, you have retailers such as Costco. They offer sometimes incredibly low prices. But they’re not the most convenient places to shop. If you want to buy a chicken, you might have to walk a mile to get to it. You’ll also have to wait in line to purchase that chicken.

At the other end, you have your convenience stores. Customers can walk in, grab something fast and get out. But, as Wipfler says, customers will have to pay more in these stores. These convenient stores might not have as much of a selection.

Then there are the other retailers who fall in between these two ends of the spectrum. It doesn’t matter which end of the spectrum retailers are on, as long as they recognize where they fit and market themselves accordingly.

Look, too, at malls. Some retailers open shops in sprawling indoor malls that offer restaurants and entertainment venues. These retailers are banking on capturing those shoppers who want to make an entire event out of their shopping experience.

Then there are retailers located in power centers. Shoppers visiting these locations pull up to the front door, walk into the store, buy what they want and leave.

Both approaches will work. But retailers have to make sure they meet the needs of the customers they expect to attract.

“Those retailers that don’t understand where they land on the spectrum are the ones that are truly struggling today,” Wipfler said.